Visa Chief Scharf Holds out Digital Payments As Olive Branch to Fee-Weary Retailers

In the wake of an important Supreme Court decision early last week, Visa Inc.’s chief executive Thursday afternoon sounded a conciliatory note on the company’s often fraught relations with merchants and touted Visa’s digital-payments initiatives as a way of bringing more value to retailers in return for the fees they pay for card acceptance.

Speaking during a conference call on the card network’s quarterly results, Charles W. Scharf said Visa is “pleased” with the high court’s decision not to review an appeals court’s action in upholding the Federal Reserve’s interchange caps and routing rules for debit cards. Merchants and merchant trade groups argue the Fed rules favor financial institutions’ interests and don’t follow the language of the Durbin Amendment to the 2010 Dodd-Frank law.

The Supreme Court’s refusal to hear the case was “an important step in bringing clarity to the debit-interchange landscape,” said Scharf during Thursday’s call with analysts.

Instead of arguing over how transactions should be priced, Scharf said Visa is focused on bringing added value to merchants through services such as tokenization and Visa Checkout, the company’s digital wallet launched last summer. “We’re laser-focused to drive cash to digital payments,” he said, ticking off Visa’s work with Checkout, Apple Inc’s Apple Pay mobile-payments service, and Visa Digital Solutions, a new unit set to launch next week. “There’s much more to come,” Scharf promised.

Visa Checkout in particular demonstrates how the network can work with merchants in ways that benefit them, Scharf argued. Some 110 online merchants have signed up to accept Checkout transactions, representing $42 billion in so-called addressable payments volume. The service now boasts more than 3 million users.

A number of these merchants have participated in two-dozen co-marketing efforts for Checkout, Scharf noted. “The idea of merchants advertising alongside us is something we wouldn’t have even contemplated a couple years ago,” he said.

The reason for merchant support, he said, is that Checkout offers higher close rates and brings in new customers. “We have to prove to merchants we can show up with solutions that are better for them,” he added.

Back on the legal front, Scharf and chief financial officer Byron Pollitt reported that Visa has now paid out $335 million to settle with merchants that had earlier opted out of the 2012 settlement of a massive antitrust case in which merchants challenged credit card interchange. That’s out of some $1.7 billion the company has set aside in escrow for these settlements, Pollitt said, though he added he didn’t have a number for how many opt-out cases remain.

Scharf also reported that 43 Visa issuers have enrolled in the network’s nascent token service, a prerequisite for participating in Apple Pay. The issuers represent about three-quarters of Visa’s U.S. payment volume, he said. Another 500-plus issuers have signed Apple Pay contracts and will adopt the token service. Tokenization technology masks actual card-account numbers by replacing them with randomly derived proxies and is seen as a key defense against card fraud.

Scharf added that Visa will introduce “some tokenization solutions” for browser-based payments products this spring.

In response to an analyst’s question about Visa’s work with other handset makers besides Apple, Scharf said “we would expect to see a number of these solutions come to market in the next several quarters,” without giving specifics. Visa is widely thought to be working with Samsung on a payments service called Samsung Pay for the new Samsung Galaxy S6 smart phone, expected to launch in March.

Asked to comment on the Fed’s faster-payment plan, released by central bank this week in the form of a formal paper, Scharf said Visa has been “actively involved” in the project, but he couldn’t be more specific. “What [the Fed plan] means for us, I don’t think any of us know,” he said. “That will play out.”

For the October through December quarter, which is Visa’s first fiscal quarter for 2015, the company reported total U.S. payments volume of $651 billion, up 10% over the year-ago quarter. Credit card volume was $327 billion, up 13.5%, while debit card volume grew 7% to $323 billion.